Publishing consultants want to foster competition among retailers by making consumers miserable

I’m not a publishing industry “insider.” I admit that. I know I pontificate from time to time, and have opinions very strongly expressed, but sometimes I have to remind myself that I’m “just” a consumer and a very interested onlooker who’s been observing the field from the outside for the last ten or fifteen years.

From my perspective, it often seems like publishing industry folks don’t seem to know what they’re doing. Nonetheless, you know the old saying about what is done by those who can and those who can’t. I keep telling myself, this is how these people earn their living. They must know something I don’t.

But then I see articles like this one in Publishers Weekly, about competing with Amazon on print and digital fronts, and I start to wonder.

Most of the article is all right, talking about the size of Amazon’s influence in the industry and what various businesses are doing to try to compete. As far as the size goes, I have to admit the figures they came up with are impressive. If those figures can be believed, Amazon is responsible for 41% of all book purchases, whether on-line or in a store, 65% of all online book units, and 67% of e-book units.

Those are some rather impressive numbers, and show just how much power Amazon wields over the book market. Nonetheless, every one of those customers could, at least in theory, order books from Barnes & Noble instead if they wanted to. it’s not like Barnes & Noble is hard to find, or Amazon is blocking customers from getting to their web site somehow. At least insofar as paper books are concerned. E-books are another matter, but I’ve already talked about that.

As for the competitive efforts, Barnes & Noble is revamping its e-commerce web site for 2015; independent booksellers are signing up with the ABA’s IndieCommerce online shopping product; another company called Readerlink is looking into selling print books online.

But then they go and talk to Peter Hildick-Smith, CEO of the Codex Group. Last year, we briefly quoted Hildick-Smith arguing that publishers should protect physical retail stores. His stance doesn’t seem to have changed much.

Hildick-Smith believes that if publishers want to help ensure a diverse marketplace, they need to move back to agency pricing on e-books once the court-order restrictions expire, and to return to windowing. Hildick-Smith believes publishers should follow the film industry’s successful model of releasing new content in premium format first, followed by discount formats in later releases. Hildick-Smith has been a longtime supporter of windowing as a way to "give bricks-and-mortar stores a chance to do what they do best," noting that Amazon’s own bestseller publishing program has struggled without physical-world retailer support. (One possible roadblock to windowing are reports that Amazon’s contract prohibits the practice.)

Acknowledging that a move to windowing would mean that publishers would need to market both title releases, Hildick-Smith believes that the combined sales of a print first release and delayed digital edition would bring in more revenue than what publishers are earning now from the simultaneous release of hardcover and e-book formats. And, just as important, windowing would help maintain a diverse book marketplace. The way current trends are going, Hildick-Smith says, in a couple of years the American book market could look a lot like the U.K. market, with relatively few bricks-and mortar stores.

What color is the sky in his world?

Windowing doesn’t work. It’s been repeatedly proven not to work. It doesn’t lead to any additional print sales (and why would it? If someone wanted the print book, they’d buy the print book whether the e-book was windowed or not) and it actually decreases sales of the e-book as people either pirate a scanned version of the print book or forget they wanted it by the time it comes out.

(And given that, according to the latest Author Earnings report, e-book sales account for 46% of fiction sales revenue and 59% of fiction unit sales, I would say that if it’s a matter of “protecting” print book sales, that battle has already been lost. Windowing will harm the type of media that accounts for the majority of fiction unit sales more than it will help the one that makes up the minority.)

In a rare display of common sense, even Macmillan CEO John Sargent acknowledged it doesn’t work:

Windowing, however, was widely acknowledged by publishers to be a flawed tactic. Macmillan’s John Sargent noted in an e-mail that the practice was not economically favorable to publishers, nor was it likely to change Amazon’s behavior. And it was likely to increase piracy, as frustrated consumers would look to rip windowed books from the Internet. In a blunt assessment, Sargent said windowing “actually made no damn sense at all” and predicted disaster “if we keep doing it.”

—Albanese, Andrew Richard  (2013-06-18). The Battle of $9.99: How Apple, Amazon, and the Big Six Publishers Changed the E-Book Business Overnight (Kindle Single) (Kindle Locations 387-391). Publishers Weekly. Kindle Edition.

That was why the publishers only ever windowed 37 books, and decided to drop it in favor of colluding illegally to fix prices instead. (And Apple even tried to argue this at its trial: “If they hadn’t taken control of prices, they’d have had to window, and nobody would have wanted that.”) And yet, people like Hildick-Smith and this comic book shop guy still push for it, as if delaying the availability of the e-book will somehow magically cause all the people who prefer e-books to buy it in paper instead, rather than just go out and pirate it in e, check it out from the library, or not buy it at all. Seriously?

As for that bit about being more like the film industry, the film industry has been moving to reduce windowing itself. In a couple of high-profile examples (Veronica Mars and Joss Whedon’s In Your Eyes) the movie has been made available online at the same time it was released in theaters, and they seem to be doing just fine.

The next bit is even richer:

Ardy Khazaei, former Bookish CEO and now an industry consultant, also believes a move to agency pricing would help other companies compete more effectively with Amazon, at least on the e-book front. Publishers, Khazaei feels, also need to be prepared to change and broaden their marketing messages to let consumers know where they can buy books other than Amazon.

Ah yes, the CEO of that “book recommendation site” that was created to plug three of the big six publishers’ e-books, but flopped so badly it ended up being bought by “social e-book retailer” Zola Books earlier this year, after only a few months of operation. Clearly, this CEO knows what he’s doing and is someone we should all listen to! Hey, maybe we should change that old saying to “Those who can, do. Those who can’t, consult.

Yeah, sure, agency pricing might help other e-book companies compete with Amazon. While indie self-pub writers set their prices lower and eat the publishers’ lunch even more at every e-book company. Over on hotbeds of self-pub advocates, like The Passive Voice, Joe Konrath’s blog, and so on, you can see indie writers dearly hoping the Big Five get their way and impose agency pricing again, so they can make that many more sales.

One of the frequent complaints you hear from Big Publishing advocates is that Amazon treats books like widgets, as if every book is a perfect substitute for every other book. But books are special snowflakes! “If you want to read War and Peace,” they say, “you won’t be satisfied with Twilight.”

But the thing is, while particular books may not be fungible with each other, people’s reading time is. Most people have more than one book they’d like to read. Indeed, they often have more things they’d like to read than they have time to read. So unless they’re really desperate to read one certain specific book at that particular time (which does happen, granted, but probably not as much as publishers would like to think), if it’s not priced reasonably they’ll shrug and go to the next book that looks interesting that they can actually afford.

Maybe someone wants to read both Twilight and War and Peace, but can’t afford Twilight, so goes with War and Peace instead. (Which, since it’s in the public domain, is actually free. So it’s a lot cheaper than Twilight even if Twilight was reasonably priced!) In that case, any book (out of those books the reader wants to read or thinks looks like fun) is a perfect substitute for any other.

The Big Six publishers sold fewer books under agency pricing. (And Random House made out like a bandit during the year it didn’t agency price, then its revenues took a similar drop when it did.) That’s a fact that was proven in the statistics presented during the Apple trial. And if it’s so important to publishers that other e-tailers should be able to compete with Amazon that they’re willing to gut their and their authors’ royalties to aid in that cause, I would suggest that those authors really should be asking themselves whether these publishers really have their best interests at heart.

Khazaei goes on to suggest that publishers should go ahead and develop their own e-book ventures, independent of Amazon. (Hey, like Bookish was supposed to be? That really worked out well!) I would actually tend to agree that would be a good idea, especially if they dropped DRM. Kazaei says something about publishers being afraid of annoying their retail partners. But Baen seems to be selling its own e-books just fine still, with the caveat that the monthly bundles aren’t available past the e-books’ official release date anymore. Amazon, B&N, Kobo, and Apple don’t seem to have any problems competing with Baen itself. So why should they with any other publisher?

Of course, even if they did make their own e-book stores, they’d still be playing second fiddle to the convenience of Amazon. But it would at least be a start. Though if they put the same level of expertise into their stores that they did into Bookish, I’m not sure Amazon would have anything to worry about regardless. Seriously, why is anyone still even listening to that guy?

Someday, big publishers are going to have to start paying attention to the consumers, the people who actually buy and read their books, rather than worrying about the terms they can pry out of the stores. We’ve made it known over and over again that we don’t like high prices and we don’t like windowing. Why do these “consultants” keep pushing those things as if they think we’re just kidding? If the publishers have their way, unless they get a clue, sooner or later they’re going to ride their buggy whip manufacturing industry right down into the dust, while the self-publishing horseless carriage makers thrive.

9 Comments on Publishing consultants want to foster competition among retailers by making consumers miserable

  1. We don’t like high prices, and we don’t like windowing, and some of us don’t like DRM. I think most of us blame DRM more on the big publishers than on Amazon, and it just makes us hate them worse.

  2. Windowing doesn’t bother me. What really bothered me about how windowing was _implemented_ was that there was no set policy. The windowing period wasn’t fixed, and the eventual availability of an eBook was a big “maybe”.

    If “big 5 publisher No. 2″ set a policy that “all eBooks will be released **exactly** 90 days after the hardcover book release date” then I could live with and adapt to that policy.

    I don’t even think that there would be much scanning of paper books for pirate distribution under that system. Perhaps a few best sellers would be scanned and pirated, but who really wants a crappy, uncorrected, scanned copy of a book when the official eBook will be released in a few months?

    This, however is not my preferred eBook marketing solution. My advice to the big 5 is as follows:

    1. Set a wholesale price for each eBook. Sell these eBooks to retailers at the wholesale price, and let them charge what they will.

    2. If the retailers are selling most of your books at a price that you believe is too low, then raise the wholesale price of eBooks across the board.

    3. Set up your own retail eBook store, to sell your eBooks at the “manufacturer’s suggested retail price”. Any other eBook store, therefore, that tries to sell some books at a loss and to sell others at higher prices, to earn an overall profit, will be squeezed against a “ceiling price” established at the publisher’s own store.

    4. Get rid of encryption type DRM, so that people who buy books from the publishers store can easily load them onto their book reader devices.

    Publishers really do have a lot of power to control prices, without resorting to the agency pricing system.

  3. I agree with you about windowing, but disagree with you about agency pricing.

    Ultimately, a decision has to be made: Do we encourage a world (U.S. world, that is) in which, with the exception of bestsellers, the only place we can buy books (print or e) is Amazon or do we encourage a world in which B&M as well as online booksellers can survive? If our goal is the former, then agency pricing has to go; if the latter is our goal, then agency pricing is needed.

    The reasons have been stated innumerable times, and just as often as they have been stated, those who are pro-Amazon dominance pooh-pooh those reasons and those who are anti-Amazon recite those reasons. The bottom line is that NO bookseller can compete on price with Amazon because NO bookseller has the ability to have other divisions prop up a money-losing bookstore.

    One key to Amazon’s success — note that I said one, not the only — has been its ability to always undercut someone else’s price even if it meant a loss rather than zero profit. Consequently, Amazon has consistently and persistently had lower pricing than other booksellers. It has been able to do this because Wall Street has not punished its stock for making little to no profit and because it has had a wide array of other goods to sell for a profit, such as electronics.

    Amazon’s bookseller competition has not had either of those advantages. B&N stock has consistently been punished, for example, for not making what Wall Street has considered a sufficient profit. (Outlets like Target and Walmart are not booksellers any more than your local convenience store is because they have very limited stock. “Booksellers” refers to stores like B&N and Books-a-Million and the local small, independent bookstore.)

    A separate question is whether the agency pricing instituted by the publishers is reasonable; that is, is it reasonable to set the price for an ebook at $15 rather than at $10. The price setting levels may be unreasonable or wrong, but that doesn’t affect whether agency pricing is right or wrong for keeping competition alive.

  4. A retailer accounting for 40% of a product’s total sales is nothing new. Walmart, Best Buy, and Barnes & Noble have all accounted for as much as 80% of certain product’s sales. A buyer at Kmart lost his job when Money Magazine discovered they accounted for 80% of Durafan’s sales while he was also caught buying their trading stock.

    I want to propose an irony no one is talking about. In the 1980s there were many vibrant indie booksellers. I worked for one in Boston. Then along came regional chains like Lauriat’s. Then Barnes & Noble put the hurt into everyone and gathered 40% share and more while taking up to 60% margin on average from the publishers versus the old 40%. This was bad for publishing. Then along comes online and eventually Amazon. Suddenly B&N and Borders are in trouble. Amazon takes so much business away from them that one fails and the other is teetering. Guess what? The indies are now benefiting from this as their true competition was other brick and mortar. A socially-responsible shopper who wants to keep dollars local will dislike B&N as much as Amazon.

    So for now I would argue despite all the public brouhaha against Amazon that they are helping indies stabilize by hurting B&N and killing off Borders. Where I think this could change is if Amazon buys the best B&N stores eventually and sells electronics and books as a more viable store product assortment. I can see that coming and it also will be bad for Best Buy. Meanwhile what Amazon has done with ebooks will save many a publisher and author. Publishers need to change their points of view or miss the boat. They know this but would never not publicly support their former nemesis B&N. Once B&N is bought or mostly gone, the shift to digital will accelerate dramatically. Or so I expect.

  5. Rich: I’m with Judge Cote. When your “competition” is a choice of a dozen stores at which you can buy the exact same product at the exact same price, that’s not “competition.” That’s stasis. “Meh, if I buy it anywhere else it’ll just cost the same, might as well keep on buying it where I was buying it already.” How is that supposed to get people to break free of Amazon?

  6. Deborah Smith // June 8, 2014 at 12:27 am //

    This cannot be said often enough: Amazon sells books *at a loss* in order to lure customers to its other products. That is the difference between Amazon and a book publisher. Book publishers and indie booksellers depend on the sale of *books* to earn their income: Amazon not only couldn’t care less about the revenue from books so long as they provide cheap entertainment to get people through the virtual doorways where the store can sell sell sell those much higher priced products. This is no secret. Bezos has made it clear. And *that* is why Amazon drives the cost of books down — not out of a love for providing literature to the masses, or for making book lovers happy, but to USE BOOKS AS BAIT. Which is why anyone who truly cares about publishing, authors, readers and the future of the book industry should be concerned about Amazon’s practices.

  7. This can also not be said often enough, Deborah: that’s wrong. Amazon has said, under oath in a court of law, that it sells some books at a loss in order to lure customers to buy other books.

    In sworn statements, Amazon officials claimed the company’s $9.99 pricing was both sustainable and profitable. Most of the new releases Amazon sold at $9.99 were at break-even margins, [Vice President of Kindle Content David] Naggar testified. Amazon was taking a hit on some titles, such as Greenspan’s memoir. But Naggar insisted that such negative-margin titles accounted for only a small percentage of Kindle revenues—maybe 15% to 20%. And those titles, he stressed, represented nothing more than “a classic loss-leading strategy” common to the book business—including with print books.

    Overall, Kindle e-book sales were profitable, he insisted, because the $9.99 price on new bestsellers encouraged readers to buy more previously published books from deeper in the catalog, known in publishing parlance as the backlist (as opposed to new releases, which are considered the frontlist.)

    “One of the great things about attractive pricing on frontlist titles is that it often prompts customers to make immediate purchases from the backlist,” Naggar explained in his direct testimony. “You’re lying in bed, and it is 11 o’clock, and you’ve just finished a book that you loved and you’re not ready to go to sleep, you want to read some more. Given that you’re holding a bookstore in your hand with a Kindle, you’re likely to buy another book by that author, which generally means a backlist title, where the deep discounting was not in effect.”

    Albanese, Andrew Richard (2013-06-18). The Battle of $9.99: How Apple, Amazon, and the Big Six Publishers Changed the E-Book Business Overnight (Kindle Single) (Kindle Locations 266-277). Publishers Weekly. Kindle Edition.

    What is there about that that’s so hard to get? Are you going to read an e-book on your Kindle and like it so much you decide to buy, not another e-book, but a lawnmower or something?

  8. @Deborah- Seriously? The Deborah Smith that advertised “On Bear Mountain” for $1.99 on Amazon during the month of March 2014? That strikes me as the very same strategy Amazon used before agency pricing was put in place. If my purchases from back then are anything to go by, it was an effective strategy.

    You currently have Sentimental Journey by Jill Barnett on sale at Amazon. Why? Is it to give readers a deal on one of her books, hope they like it and then hope they purchase other books written by her? Let me know if I have it wrong.

  9. @Deborah Smith: anyone who care about publishing, authors, readers or the book industry should be just as concerned about the practices of these publishers. It’s seems like some people are so desperate to escape Amazon’s market power that they’re encouraging a shift to vertical price maintenence led by these folks, or as I like to think of it, out of the frying pan and into the fire. Agency type deals have been considered inherently illegal under antitrust law repeatedly over the past 100 years, being allowed and then banned again because, at its core, it’s price fixing and almost inevitably leads to massively abusive practices. Agency-type deals have only been legal this time since 2007 (thanks to SCOTUS) and look at what happened. These same publishers almost immediately colluded together illegally to impose their desired vertical price maintenance regime on the industry. Agency-type deals have a better chance of being made outright illegal again in the not too distant future than they do being any sort of industry savior.

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